The Future

of Robotics
An Inside View on
Innovation in Robotics

FEATURE
Robots, Humans
and Work
Executive Summary

Robotics in the Startup Ecosystem

Austin Badger
Director, Frontier Tech Practice
The automation of production through three industrial revolutions has
increased global output exponentially. Now, with machines increasingly
aware and interconnected, Industry 4.0 is upon us. Leading the charge
are fleets of autonomous robots. Built by major multinationals and
increasingly by innovative VC-backed companies, these robots have
already become established participants in many areas of the economy,
from assembly lines to farms to restaurants.
Investors, founders and policymakers are all still working to
conceptualize a framework for these companies and their transformative
technology. In this report, we take a data-driven approach to emerging
topics in the industry, including business models, performance metrics,
and capitalization trends.
Finally, we review leading theories of how automation affects the labor
market, and provide quantitative evidence for and against them. It is our
view that the social implications of this industry will be massive and will
require a continual examination by those driving this technology forward.

The Future of Robotics 2

Table of Contents

4 14 21
The Landscape VC and Robots Robots, Humans
and Work
Industry 4.0 and the An Emerging Framework
Robotics Ecosystem The Interplay of
Automation and Labor

The Future of Robotics 3

The Landscape
Industry 4.0 and
the Robotics
Ecosystem

The Future of Robotics 4

COVID-19 and US Manufacturing, Production and Nonsupervisory Workers

the Next 12.8M

Automation
Wave 10.2M

Recessions tend to reduce 9.0M

employment, and some jobs
don’t come back. This trend is
7.8M1
glaring for US manufacturing
in the prior two downturns as
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
businesses reconsidered their
supply chains and looked to Automation Stock Performance
move production offshore or April 14–May 14, 2020 Share of executives investing
to automate. The pandemic’s in accelerating automation
effect on global supply chains due to COVID-19

41 percent2
has made the offshoring ROBO Index
S&P 500
option problematic, increasing
the likelihood that this cycle +3.3% Forecast 2021 robotics
will see an increase in market size after COVID-19
investment in automation.
Executive surveys and
-1.5%
$23 billion3
robotics stock performance 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

indicate this has started. Days since April 14

Notes: 1) Preliminary reading. 2) Based on Ernst & Young survey results. released
3/30/2020. 3) Based on ABI Research study results released 4/2/2020.
Source: Bureau of Labor Statistics, S&P Capital IQ, Ernst & Young and ABI Research. The Future of Robotics 5
Production US GDP per Capita through Four Industrial Revolutions

Over the
Past Two First
Watt’s steam engine
Second
The internal combustion
Third
The advent of
Fourth
Frontier technologies like 3D

Centuries
becomes an energy engine and electricity computing is printing, IoT, AR/VR and AI
source for industry and enable the operation of applied to promise to make industry
transportation. Textile larger factories and new industry, enabling fully digital. A new
innovations, such as modes of transportation. increased task generation of industrial
robots can more fluidly
Global civilization has the power loom,
drastically increase
Telegraph and telephone
drive a concurrent
automation. The
applied robotics integrate with a factory,
grown exponentially British output. communications
revolution.
industry is born. learn new tasks, and work
safely alongside humans.
wealthier and more An unprecedented
amount of data
productive through three is generated.

industrial revolutions. A
fourth is now underway,
one which promises to
unlock new opportunity,
but may also unleash
transformative shifts for
labor, industry, and
society at large. 1790 1840 1890 1940 1990

Source: Barro-Ursua Macroeconomic Dataset. The Future of Robotics 6

The Fourth BCG Constituent Technologies of Industry 4.0

Industrial
Revolution
Is Upon Us
Additive
A confluence of technological Manufacturing
advancement in various fields
has allowed entrepreneurs to
develop solutions to common Big Data Analytics Simulation
problems in industry. These
solutions are far from isolated
and cross the digital and
physical realms. Robotic
performance of tasks is a key
Internet of Things
element in this interplay. In a Augmented Reality Robotics
recent cross-industry McKinsey
study, 70% of surveyed
executives said they expect
advanced robotics to become a
very important productivity Vertical and Horizontal Cybersecurity
driver by 2025. System Integration

The Cloud

Source: Boston Consulting Group. The Future of Robotics 7

Driven by Annual Installations of Industrial Robots by Region

Asia, the Thousands of Units

Industrial North America CAGR %

Robo-force Europe
Asia/Australia
69 9%

Swells 64
87 8%
59
Annual installations of 83
industrial robots have more 55 54
46
than doubled since 2013, 79

growing at 18% CAGR1. This 67 76 74

is expected to slow in the
41
next four years to 9%. China
has led the way, increasing 38 56
its stock of industrial robots 33
420 17%
50 368
nearly fivefold. 30 46 320
28 280 283 285
While impressive, this rate 41
43
200
of growth is not tremendous. 161
134
Innovating the existing stock 85 99
of robots is a compelling
opportunity, as is expanding 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
that stock.
Projected

Notes: 1) CAGR = Compound Annual Growth Rate.

Source: International Federation of Robotics. The Future of Robotics 8
Robotics
Enjoys
Unique
Advantages
There are three key features
that set robotics apart from
other thriving sectors. Unlike
other autonomous hardware
such as AVs, many applied
robotics use cases occur in
closed and well-mapped
environments, thereby
reducing engineering
problems. In many
industries, robots can add
immediate value and unlock
visibility into new
productive data.
Three Virtues of Modern Applied Robotics
Closed Environments
Innovation can occur
without physical interaction
with an end customer.
Robots safely operate within
constrained and less-
trafficked environments.
This significantly reduces
engineering problems, and
allows machines to learn
faster while producing
insightful data.
Immediate Value
The boldest applications
may seem distant (e.g.,
humanoid robot assistants),
but startups and corporates
are finding immediate
success deploying robots to
achieve specific tasks. ROI
can be immediately
achieved for repetitive
tasks, such as agtech use
cases, or in scenarios where
overnight work enables
step-ups in productivity.
Data Acquisition
Many industries have grown
used to an abundance of
data; the primary and
secondary sectors are
behind this curve. Inserting
robots into production
environments unlocks new
streams of physical data,
catalyzing positive feedback
loops that further optimize
production.
The Future of Robotics 9
VC Appetite Global VC Investment in Robotics and Related Hardware

for Robotics
Growing Fast 2012–2019 CAGR

Venture investment in Robotics VC 55%

companies building robots or
23%
related hardware has All VC
exploded over the last 789 $5.4B
business cycle, topping $2B in 746
the first quarter of 2019. 681
Investment in robotics has 606
significantly outpaced the rest Capital Invested $3.9B
531
of venture, making robotics Deals
one of the hottest sectors of $3.1B
the decade. Near the
beginning of 2018, growth in
310
deal count stalled, while $1.8B $1.8B
dollars invested continued to
rise. This suggests that 164
category leaders are 112
$0.6B
75
beginning to be established. 43 58
$0.3B $0.4B

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: PitchBook. The Future of Robotics 10

VC Challenges Public Robotics Business Revenue and Robotics VC Investment

Incumbent Public Company Revenue1 Venture Capital Investment2

Strongholds (Global Share by Region) (Global Share by Region)

The market for industrial 39% 3%

robots is dominated by 26% 0.5%

large public companies,
with a handful of Japanese 17% 55%
conglomerates ahead of the
14% 1%
pack.
2% 26%
VC investment in robotics
startups is, by contrast,
concentrated in the United
States and China. VC Investment in Robotics2 (2013–2018)

This is both an indication of

where the larger industry
may shift in the future
and a competitive risk for
incumbent firms, which has
already motivated several $11B $5B $4B
strategic acquisitions. Rest of World

Notes: 1) Encompasses robotics-related segments of public companies,

where reported, for 2018. 2) VC investment calculated for 2013–2018 VC
investment in robotics and related hardware startups.
Source: S&P Capital IQ and PitchBook. The Future of Robotics 11
 Percentage of VC Deals by Stage
Robotics Robotics Hardware Companies
Startups
Cross the Seed Early Stage Later Stage

Early Stage
12% 13%
An increasing share of 17% 17% 16% 19%
20%
robotics venture deals is
comprised of Series A and B
rounds, with seed
representing a declining
share and later stage 38% 45%
50%
47% 55%
holding steady. This 56%
56%
suggests that in the coming
years we will likely see more
later stage activity as the
market matures. The next
phase of segment maturity
will be a surge of later stage 42%
38% 36% 38%
activity. 32%
28% 26%

2013 2014 2015 2016 2017 2018 2019

Source: PitchBook. The Future of Robotics 12

Robotics SVB Robotics Market Map1

Solves Many Industry & Agriculture Service & Consumer

Different
Problems Manufacturing/Supply Chain Food

Like AI or cloud computing,

robotics is a general purpose
technology capable of adding
value to a wide range of
industries. Robots are Construction Consumer Tech
increasingly prevalent in
factories, farms, warehouses,
hospitals, homes, and
elsewhere. This market map
is not exhaustive, but it
shows some exemplars in
identified categories. Agriculture Research & Other Service

Notes: 1) Includes a selection of representative companies; not exhaustive.

Source: SVB Analysis. The Future of Robotics 13
VC and Robots
An Emerging
Framework

The Future of Robotics 14

The RaaS Robot-as-a-Service Metrics Software-as-a-Service Metrics

Mindset:
SaaS Meets Customer Acquisition Cost
(S&M1 + Hardware Cost)/(ARR2 × Gross Margin)
Customer Acquisition Cost
(S&M/(ARR2 × Gross Margin)

Hardware Number of Customers Number of Customers

The most successful and well- Annual Revenue per Robot Annual Revenue per User (ARPU)
funded robotics startups have
Annual Revenue Annual Revenue
adopted business models
Number of Robots Deployed Number of Customers
based on well-known
preferences of venture
capitalists, such as recurring Robot Lifetime Value Customer Lifetime Value
revenue and a focus on unit Annual Revenue per Robot ARPU
economics. Whenever Annual Robot Decommission Rate User Churn Rate
possible, enterprise robotics
companies should position
their robots as recurring
Key Differences
operating expenditures, not
one-off capital expenditures.
Revenue Growth: Robotics companies Data Acquisition: An underappreciated
will naturally lag software companies feature of robotics companies is their
in terms of topline growth. Typical access to unprecedented streams of
benchmark growth rates for SaaS physical data. Many applications are in
companies won’t translate to environments for which such data does not
otherwise similar RaaS models. exist, such as kitchens, farms, and hotels.

Notes: 1) S&M = Sales and Marketing Expenses. 2) ARR = Annual Run Rate. The Future of Robotics 15
RaaS Shifts Business Models Median Revenue Multiple

Robot from Business Model

CapEx to OpEx Robot as OpEx
RaaS Fixed:
OpEx CapEx

Charging customers a standard

Traditionally, industrial contracted amount for services rendered
machinery is owned or leased on a monthly, quarterly, or annual basis. 91
– not “subscribed to.” RaaS
RaaS Variable:
models shift robotic systems Charging a variable contracted amount
from a one-time capital based on either usage or consumption.
Every time the robot executes a task,
expenditure to a recurring the company collects payment.
operating expenditure. SVB
proprietary data show that
higher multiples are awarded
to robotics companies with Robot as CapEx
RaaS models. HW + Maintenance:
37
Customer buys and owns hardware
An interesting implication of upfront, and the company then 32
provides recurring maintenance and
this is that it makes robots software services.
more clearly labor-replacing.
Like wages, RaaS fees are One-Time Sale:
Sell customer a robot upfront with no
recurring payments toward contracted recurring revenue streams
7
an entity that performs tasks. from the customer.

Early Stage VC Later Stage VC

Source: SVB Proprietary Data, PitchBook. The Future of Robotics 16

Don’t Put All Median Revenue/Robot Revenue vs. Robots Deployed

Your Eggs in
One Robot

Revenue
Round Median ARR/Robot
In theory, maximizing
revenue per robot is a good
thing. However, companies
should avoid concentrating Series A $75,000
revenue in a small number of
robots – even if such a
scenario would yield higher Series B $45,333
ARR/robot. As companies
mature, we actually observe
unit revenue coming down,
as sales disperse from a small Series C $31,316
handful of early, quasi-pilot
robots to a more robust fleet.

0 20 40 60 80

Robots Deployed

Source: SVB Proprietary Data, PitchBook. The Future of Robotics 17

Expectations, ARR and ARR Valuation Multiple
Robotics Hardware Companies
Not Sales,
Drive Early Early Stage Later Stage

Post-Seed
400x

Valuations 350x

Multiples Less
At lower levels of revenue, 300x
Relevant at
ARR multiples of post-seed <$2M ARR
ARR Multiple

robotics companies vary 250x

significantly and can be
strikingly high. There 200x
appears to be significance
in the $2M annual revenue 150x
mark, after which valuations
come down as a multiple of 100x
revenue and companies grow
into their earlier
50x
expectations.

0x
$0M $2M $4M $6M $8M

ARR

Source: SVB Proprietary Data and PitchBook. The Future of Robotics 18

Investors Run Notable Large Funding Rounds

the Gamut Company Deal Size Lead Investor

Venture investment in $940M
robotics companies is driven
largely by accelerators and $241M
incubators, as well as early- $280M
stage VCs with a focus on
emerging tech. As companies $263M
gain traction, investment $186M
activity from corporate
venture and larger VC firms
picks up.
Most Active Investors
However, activity of some of
the most well-known Sand Hill
Corporate Venture Capital Traditional Venture Capital Accelerators and Incubators
firms has been surprisingly
scant. This may soon
change as investors build
an investment framework
and are reassured by
successful exits.

Source: PitchBook. The Future of Robotics 19

Industrials Mergers and Acquisitions
Robotics and Drone Companies
and Ag Lead
Exits 2012 2017 2018 2019
Increased exit activity,
highlighted by several large
M&A transactions in the
industrials and agriculture
Amazon acquired Deere & Co. acquired Fanuc acquired Shopify acquired
segment, has generated Kiva Systems for Blue River Life Robotics for 6 River Systems
returns for investors in the $678M. Technology for an undisclosed for

space, which will encourage $350M. amount.

$450M.
continued participation.
19
Notable transactions include
17
major strategic acquisitions
by companies relying on
robotics solutions, such as 13
Shopify, or by established
industrial robotics 9
8
conglomerates like FANUC.
5 8
4

2012 2013 2014 2015 2016 2017 2018 2019

Source: PitchBook and SVB Analysis. The Future of Robotics 20

Robots, Humans
and Work
The Interplay of
Automation and
Labor

The Future of Robotics 21

The Industry Conceptual Framework

Automation Quantity of Human Labor Output Level

Lifecycle Perfect
Collaboration
A nascent industry starts with Medium automation
a small number of skilled Medium output
Human task performance
producers in a “cottage
industry” format, with little to
no automation and, therefore,
human involvement in every
task (e.g., British textiles circa
Industry 1.0). As the industry
incorporates more machines,
productivity enables growth,
increasing the demand for ?
Reinvestment of
human labor. As automation Cottage Industry output and capital
deepens to become labor- Model accumulation may
stabilize or increase
displacing, employment begins Low automation
Low output human employment.
to fall. Over time, the returns Human task performance
from automation can be Automated Industry
reinvested in the industry, High automation
High output
potentially restoring and Machine task performance
increasing employment in
the long run. Productivity from Automation

The Future of Robotics 22

The Economic Three Mechanisms at Work

Results of Automation Increases Automation Takes Tasks

Automation Productivity from Human Agents

What will robotics do to the

labor market and society at
large? The risk that robots
will displace human workers
is real, but countervailing
forces, such as productivity
growth and capital Productivity, in turn, has ambiguous Some proportion of those agents will
effects on employment. lose their jobs.
accumulation, may alleviate
its effects in certain
industries. We considered Automation Generates
three possible mechanisms Wealth
by which automation affects
employment.

That wealth can be used to accumulate capital,

growing the economy and employment.

The Future of Robotics 23

Automation Productivity and Employment

Increases Productivity Employment

Productivity
US Manufacturing US Private Sector
In turn, productivity may Multifactor Productivity and Employment Multifactor Productivity and Employment
or may not be associated
with increased employment. 105 20M 105 140M
In the US manufacturing
sector, periods of 100
18M
100 130M

productivity growth 95 95
120M
coincided with declines in 16M 110M
manufacturing employment 90 90

(though these declines have 85 14M 85

100M

also been attributed to 90M

foreign competition). In 80 12M 80
80M
the greater private sector, 75 75
however, productivity r = -0.89 10M r = 0.92 70M

growth has coincided 70 70

60M
with employment gains. 65
8M
65 50M

60 6M 60 40M

2002
2005
2008
1987
2002
2005
2008
1987

1990
1993
1996
1999

2011
2014
2017
1990
1993
1996
1999

2011
2014
2017

Source: Bureau of Labor Statistics. The Future of Robotics 24

Automation Displacement Risk and Scholastic Performance
Reporting OECD Countries
Can Displace
Labor Share of Jobs with >50% Risk of Automation
Scholastic Performance Percentile1
Share of Jobs with >70% Risk of Automation
Pre-COVID Unemployment Level
The risk of massive
displacement is lower in
many of the richest nations.
Regrettably, those countries

43%
35%
85th

39%
36%
with the highest risk of

27%
31%
30%
36%
31%
33%
31%
30%
displacement include some of

32%
28%
33%
31%
27%
29%
29%
29%
the lowest-scoring in math,

28%
26%
27%
27%
26%
23%
science, and reading. These
26%

60 th

26%
countries may have a more

23%
22%

22%
20%

18%
difficult time adjusting to the

17%

17%

16%
16%
16%

15%

15%

15%
14%
14%
13%

12%
12%

11%

10%
New Zealand 10%

changing needs of the labor

11%
10%
8%
6%

7%

market, as many experts

Netherlands

Czech Rep.

Lithuania
Germany
Denmark

Slovenia

Slovakia
Belgium
Sweden
Norway

Finland

Estonia
Canada
anticipate that automation

Ireland

Austria

Poland

Greece
Turkey
France
Korea
Israel

Japan
Chile
Italy
U.K.
US

will shift demand toward

more highly skilled workers.

2.1%

2.4%
2.8%

3.1%
3.3%

3.5%
3.7%

3.7%
3.8%
4.0%

4.1%
4.2%

4.2%

4.2%
4.7%
5.2%

5.2%

5.7%
6.3%

6.4%
6.6%
6.8%

7.4%
8.2%

9.6%

13.2%
16.6%
Notes: 1) Measured by mean cumulative Programme for International
Student Assessment (PISA) score. Percentiles based on all countries
participating in the PISA assessment program, not just those shown.
Source: Organisation for Economic Co-operation and Development. The Future of Robotics 25
Automation The Case of the ATM in the US

May Spur 2004–2009 CAGR 2009–2017 CAGR

Capital 3.6%

Accumulation 2.1%
1.7%
0.8%
The ATM has been cited as a
counterexample to the notion
that automation reduces the -0.4%
demand for labor. The initial
growth of ATMs coincided -2.0%
with increased bank teller ATMs Commercial Bank Branches Bank Teller Employment
employment. Since 2009,
this paradigm appears to have Wealth and Capital Formation in the US1
shifted; while ATMs continue
to expand (albeit more slowly),
branches and teller employment Wealth Capital Formation
are in decline.
Generally, automation generates
additional wealth, which is highly
correlated with capital formation.
If new capital creates enough
new jobs, then the “ATM effect”
can occur.

Notes: 1) Figures indexed to Q2 2003 levels.

Source: International Monetary Fund, ATM Industry Association, BLS, OECD and Federal Reserve. The Future of Robotics 26
Bold Policy
Proposals
Have Gained
Traction and
Advocacy
The impending shifts in how
work is done have catalyzed
lively debate over future
policy approaches. Thought
leaders in industry, academia
and politics have made
ambitious proposals from a
tax on the installation of
robotic systems to universal
basic income.
Source: Politico and Forbes.
Robot Tax
Policy
Tax the cost of installing robots.
Argument For
Wages paid to human labor are already
taxed; machine labor should receive the
same treatment. Absent this tax, companies
can reduce their tax base by replacing
humans. The proceeds could be used to
finance a stronger social safety net for the
technologically displaced.
Argument Against
Implementation would be made difficult by
the ambiguity of what exactly constitutes a
robot. In slowing automation, this tax
would merely postpone the problem of
displacement and increase reliance on a
bureaucratic social safety net.
Proponents
Bill Gates
Mark Cuban
Universal Basic Income
Policy
Pay a fixed monthly sum to all citizens.
Argument For
Automation will generate massive wealth
for a relatively small proportion of the
workforce. Industry 4.0 will displace
human labor on a very large scale. An
automatic income to all citizens would
provide an escape from scarcity so that
they can adjust their skill set for new, more
complex jobs.
Argument Against
Paying for such a policy would require an
increase in taxes or the national debt,
which would counteract any benefit from
the transfer itself. Further, higher incomes
will be offset by inflation.
Proponents
Andrew Yang
Milton Friedman
The Future of Robotics 27
Report Authors
Austin Badger
Director, Frontier Tech
abadger@svb.com
Austin Badger leads a team on Silicon Valley Bank’s Frontier Tech
Practice in San Francisco. Austin works with high-growth companies
that create disruptive technologies in the businesses of robotics,
transportation, connected home, aerospace, consumer electronics, and
semiconductors, with a focus on the convergence of hardware,
software, and data. The role places him across the table from some of
the world’s most innovative deep-technology thinkers and equips him
to help bring their bold and audacious visions to life.
Austin has held a number of roles at SVB and brings over a decade of
investing experience to his clients. A Colorado kid at heart, Austin
graduated from the University of Colorado and holds a bachelor’s
degree in finance. Married and the father of two fantastic young
children, Austin can be found tinkering with clients' technology to
help optimize every life experience.
Evan Oliner
Sr. Associate, Research
eoliner@svb.com
Evan Oliner is a Research Associate based in San Francisco who is
responsible for capital markets research and data-driven analysis of
the global innovation economy that SVB serves. In this role, he
supports research efforts exploring investment, fundraising and exit
dynamics in the global venture ecosystem. He is a contributor to the
quarterly State of the Markets report.
Evan takes an interest in macroeconomics and international trends.
Prior to this role, he worked for a leading economic consulting firm.
He earned Bachelor of Science degrees from the University of
Southern California, Bocconi University, and the Hong Kong
University of Science and Technology.
The Future of Robotics 28
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The Future of Robotics 29

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